A Multivariate Model of Strategic Asset Allocation with Longevity Risk

Emilio Bisetti, Carlo Favero, Giacomo Nocera and Claudio Tebaldi

Journal of Financial and Quantitative Analysis, 2017, vol. 52, issue 5, 2251-2275

Abstract: Population-wide increase in life expectancy is a source of aggregate risk. Longevity-linked securities are a natural instrument to reallocate that risk. This paper extends the standard Campbell–Viceira (2005) strategic asset allocation model by including a longevity-linked investment possibility. Model estimation, based on prices for standardized annuities publicly offered by U.S. insurance companies, shows that aggregate shocks to survival probabilities are predictors for long-term returns of the longevity-linked securities, and reveals an unexpected predictability pattern. Valuation of longevity risk premium confirms that longevity-linked securities offer inexpensive funding opportunities to asset managers.

Date: 2017
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Working Paper: A Multivariate Model of Strategic Asset Allocation with Longevity Risk (2017)
Working Paper: A Multivariate Model of Strategic Asset Allocation with Longevity Risk (2015)
Working Paper: A Multivariate Model of Strategic Asset Allocation with Longevity Risk (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:52:y:2017:i:05:p:2251-2275_00

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